Wayne State University Accounting 101 - Business Affairs Officers

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Wayne State University Accounting 101 February 16, 2011 Prepared by Tamaka Butler, Associate Controller

WSU Accounting 101 Contents Overview – Basic WSU Accounting & Banner System Information WSU Chart (FOAPAL) Structure Accounting Scenarios And the Related Journal Entries Questions 2

WSU Accounting Overview “Basis of Accounting” Wayne State University’s financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) principles. The day-to-day accounting is prepared using fund accounting. Fund accounting is an accounting and reporting system commonly used by public colleges and universities to keep track of resources whose use is limited by donors, granting agencies, law, other outside individuals or entities, or by governing boards. A fund is maintained for each specific purpose. A fund is a self-balancing “entity” with its own set of accounts, consisting of assets, liabilities and fund balance (equity). 3

WSU Accounting Overview “Encumbrances” WSU, like many public institutions, use the encumbrance system to help control expenditures as it relates to budgets. Under this system, the amount of the available balance for a given department is reduced when purchase orders or other commitments are established (i.e. POs. IRBs, Travel, etc.). Encumbrances are not included with expenses in externally issued financial reports or reported as liabilities because the amounts are not yet owed under the accrual basis. 4

WSU Accounting Overview “Banner” Banner is the integrated database system used at WSU which includes the following components: Finance, Human Resources, Student, Financial Aid, and Alumni/Development, General. Banner Finance houses the accounting ledgers, procurement, accounts payable, accounts receivable, endowment, fixed assets, and research accounting. The core of Banner Finance consists of: General Ledger which is equivalent to the Balance Sheet Operating Ledger which is equivalent to the Income Statement Encumbrance Ledger which is used to reserve against available balances for anticipated expenditures and/or outstanding commitments (purchase orders, Internal Requisition Billings, etc.) 5

FOAPAL Structure - Chart of Accounts WSU’s Chart of Account Structure consists of six elements (FOAPAL): Fund - Identifies source of funds and represents a self – balancing set of accounts within the general ledger Organization - Identifies cost centers of the University such as School, College, Division or Department (Examples: Dean of Libraries, School of Medicine, Fiscal Operations) Account - Identifies the type of financial activity (i.e. asset/liability, expense/revenue, transfer, fund balance) Program - Identifies the purpose of the transaction (Examples: Instruction, Research) Activity - Can be used to define separate or unique activities to help refine reporting (limited use currently) Location - Identifies physical location (used in the Plant Fund only) The Index is a six character code that serves as a shortcut to a FOAPAL string combination. 6

FOAPAL Structure FOAPAL elements have a hierarchy coding system used in Banner for classification, budgeting and recording of financial transactions. Several levels of hierarchy exists for "roll-up" and reporting purposes. WSU has nine fund groups. Each fund group consists of at least one fund type. A description of the WSU Fund groups and a listing of the fund types and their corresponding numbering sequence are included on slides 8 and 9, respectively. 7

FOAPAL Structure – “Fund” WSU has the following fund groups: Current Fund Groupings (consists of funds expendable for operating purposes): General Fund - used to account for general operating activities related to academic and instructional programs and their administration. Principal revenue sources are state appropriations, tuition and indirect cost. Designated Fund - used to account for funds for specific departments which are not restricted by donors or supporting agencies. Includes organized departmental activities associated with academic programs, salary reimbursements and gifts (not restricted to a specific purpose by donor). Auxiliary Activities Fund - used to account for revenues and expenses of revenue-producing, substantially self-supporting activities that perform a service for, but are not themselves, educational or general activities. Independent Operations Fund - used to account for revenues and expenses of separately organized operations that are owned or controlled by the University but are unrelated to, or independent of, the institution’s mission. Expendable Restricted Fund - is used to account for funds restricted for specific purposes by external parties, contracts, or legislation. Noncurrent Fund Groupings: Student Loan Fund - is used to account for transactions related to university and federal student loans (excludes activity from the Direct Loan Program) Plant Fund - used to account for transactions relating to investments in physical properties, indebtedness incurred in the financing there of and reserves for maintenance, replacement, and unexpended plant fund. Endowment and Related Funds – are used to account for money and investments received where the donor has indicated the principal be held in perpetuity or the Board of Governors has elected to treat such gifts as endowments, with only the income being expended. Agency Fund - is used to account for amounts withheld from payroll and amounts held in custody for students, Universityrelated organizations and others. 8

FOAPAL Structure – “Fund” FUND STRUCTURE Fund General Fund Type Le ve l 2 11 Fund No. 11xxxx Indexes 1XXXXX Curr/NonCurr Current Designated 12 12xx or 13xx 22XXXX Current Expendable Restricted Federal State Other Governmental Private Grants & Contracts Salary Reimbursement Donations Endowment Beneficiaries Central Accounting Funds 21 23 24 25 27 28 29 2A 21xx, 22x, 2Mx 23xxx 24xxx 25xxx 27xxx 28xxx 29xxx 2Axx 3XXXXX 3XXXXX 3XXXXX 4XXXXX 4XXXXX 4XXXXX 4XXXXX 4XXXXX Current Current Current Current Current Current Current Current Auxiliary Activities 37 37x 227,228XXX Current Independent Operations (WDET) 39 39x 2278XX Current Student Loan Funds University Loans Federal Loans 51 59 51xx or 55xx 59x 05XXXX 059XXX Non-current Non-current Endowments True Term Funds Functioning As Endowment Annuity & Life Income 60 63 66 69 60xxx 63xx 66xxxx 69xx 060,061XXX 063XXX 066,067XXX 069XXX Non-current Non-current Non-current Non-current Plant Unexpended Plant Repair & Replacement Reserve Debt Service Investment in Physical Plant 70 73 75 77 70xxx 73xx 75xx 77xx 770,771,772XXX 773XXX 075XXX 077, 078, 079XXX Non-current Non-current Non-current Non-current Agency 90 9xxx 99XXXX Non-current Bank Funds BK BKxx Funds are sequentially numbered within each fund type. 9

FOAPAL Structure – “Fund” Sub-funds roll up to the fund types and are sequentially numbered as follows: Auxiliary Activities Housing 37 (fund type) 372 ro ll-up fund fo r all H o using funds Housing Admin 3721 Housing Apts 3722 ro ll-up fund fo r A pts Sherbrooke 37221 DeRoy 37222 Housing Residence Halls 3723 ro ll-up fund fo r D o rms Ghafari (North) Hall 37231 South Hall 37232 Student Center 373 South End 374 Press 375 10

FOAPAL Structure – “Organization” Organization codes identify the cost center of the School, College, Division or Department Rollup organization codes are used to summarize data by reporting unit. Hierarchy University Executive Level SCD Rollup SCD Sub-Rollup Department Rollup Individual Department Rollup Subunit Rollup Individual Subunit 11

FOAPAL Structure – “Organization” The first two digits of an organization code (SCD Sub Rollup level 4 - Individual Sub unit level 8 of the hierarchy ) represents the School/College/Division (S/C/D). S/C/D List 01 – UNIVERSITY LIBRARIES 73 – EXECUTIVE VICE PRESIDENT AND CHIEF OF STAFF 02 – EDUCATION 75 - OFFICE OF BUDGET, PLANNING & ANALYSIS 03/12 – LIBERAL ARTS & SCIENCES 78 - WOMEN'S COMMISSION 04 – FINE, PERFORMING & COMMUNICATION ARTS 82 - FISCAL OPERATIONS/INVESTMENT, DEBT & RISK MANAGEMENT 05 – ENGINEERING 86 - DEVELOPMENT & ALUMNI AFFAIRS 06 – MEDICINE 87 - MARKETING & COMMUNICATION 07 – LAW 88 - GENERAL COUNSEL 08/18/19 – PHARMACY & HEALTH SCIENCES 92 - STUDENT SERVICES & UNDERGRATUATE AFFAIRS 09 – VICE PRESIDENT FOR RESEARCH 98 - CENTRAL ACCOUNTS 10 – HEALTH & PHYSICAL EDUCATION 13 – SOCIAL WORK 14 – HONORS 15 – NURSING 16 – BUSINESS ADMINISTRATION 20 – EDUCATIONAL OUTREACH 25 – COMPUTING & INFORMATION TECHNOLOGY 30 – SECRETARY OF THE UNIVERSITY 31 – PRESIDENT 32 – VICE PRESIDENT FOR ACADEMIC AFFAIRS 33 – VICE PRESIDENT FINANCE & BUSINESS ADMINISTRATION 37 – GOVERNMENT AFFAIRS 42 – FACILITIES PLANNING & MANAGEMENT 43 - BUSINESS OPERATIONS 46 - PUBLIC SAFETY 47 - INTERNAL AUDIT 48 - LABOR RELATIONS 49 - HUMAN RESOURCES 12

FOAPAL Structure – “Organization” Sub-orgs are sequentially numbered 1-9 and A-Z For example: Library 01 (Dept. Code) Library Adm. 01A1 Library Office of Dean Library Associate Dean Library External Affairs 01A11 01A12 01A13 13

FOAPAL Structure – “Account” Account T ypes The account types represent the high level financial statement classifications and are used to group like types of account codes. Account Type Level 1 Assets Liabilities Control Accounts Fund Balance Federal Loan Funds Cumulative Total Revenues Labor/ Fringe Benefits Direct Expenditures Transfers Fund Additions Fund Deductions 10 20 30 40 42 50 60 70 81 90 95 Each account code is classified by its corresponding account type . Example: Direct Expenditures General Expenditures Supplies Office Supplies Research & Lab Supplies Computer Software 70 (account type level 1) 72 (account type level 2) 7216 72161 72162 72163 14

FOAPAL Structure – “Program” Program Codes Program codes are used for financial reporting purposes to classify expenditures by functional purpose. Description Instruction Research Public Service Academic Support Student Services Institutional Support Operation and Maintenance of Plant Scholarship and Fellowships Auxiliary Enterprises Program Code 1X 2X 3X 4X 5X 6X 7X 8X 9X All expenditure transactions in the current funds must have one of the above program codes to allow for proper classification in the University's financial statements A detailed definition of the functional expense categories is included on the following slide. 15

FOAPAL Structure – “Program” Financial Statement Functional Expense Categories Instruction - Includes expenditures for all activities that are part of the institution’s instruction program. Expenditures for both credit and noncredit activities are reported in this functional category. This function excludes expenditures for academic administration where the primary assignment is administration (i.e., academic deans). However, expenditures for departmental chair, since instruction is still an important role of the administrator, should be included in this category. Research - Includes all funds expended for activities specifically organized to produce research outcomes and commissioned by an agency either external to the institution or separately budgeted by an organizational unit within the institution. This function does not contain all sponsored programs (such as training grants), nor does it contain sponsored research only, since internally supported research programs should be included in this function. It includes only expenditures for specifically budgeted departmental research. Public Service - Includes funds budgeted specifically for public service and expended for activities established primarily to provide non- instructional services beneficial to groups external to the institution. Such activities include seminars, projects and various organizational entities established to provide services to particular sections of the community. Academic Support - Includes expenditures for activities carried out primarily to provide support services that are an integral part of the operations of one of the institution’s three primary programs: instruction, research and public service. It includes the retention, preservation, and display of materials and the provision of services that directly assist the academic functions of the institution. This function includes the media and technology (i.e., computing support) employed by the three primary programs as well as the administrative support operations that function within the various academic units (which includes the development of future instructional activities). Student Services - Includes all funds expended for admissions, registrar activities, and activities whose primary purpose is to contribute to students’ emotional and physical well-being and to their intellectual, cultural, and social development outside the context of the formal instruction program. Institutional Support - Includes all funds expended for activities whose primary purpose is to provide operational support for the day-to-day functioning of the institution, excluding expenditures for physical plant operations. Operation and Maintenance of Plant - Includes all expenditures of current funds for the operation and maintenance of the physical plant, net of amounts charged to auxiliary enterprises. It does not include expenditures made from the Plant Fund. It includes all expenditures for operations established to provide services and maintenance related to campus grounds and facilities including utilities, property insurance, fire protection and similar items. Scholarships and Fellowships - Includes monies given in the form of outright grants and trainee stipends to individuals enrolled in formal coursework, either for credit or non-credit. Auxiliary Activities – Includes expenditures relating to the operation of auxiliary enterprises, whether charged directly as expenditures or allocated as a proportionate share of costs of other departments or units. 16

Accounting Scenarios And the Related Journal Entries Scenario 1 – Accounting for a Purchase Order from requisition to vendor payment Scenario 2 – Accounting for certain Endowment Fund transactions A new gift Quarterly distributions Scenario 3 – Accounting for certain Plant Fund transactions Transfer of funding for a new account Construction in Progress (CIP) Scenario 4 – Accounting for medicare payments between WSU, State of Michigan, DMC and UPG 17

SCENARIO 1 – Accounting for a Purchase Order: From Requisition to Vendor Payment 1. Create a Requisition (Req# R01077002) for annual Hardware Maintenance in the amount of 1,483.83. 2. Establish Purchase Order (PO# P0501596) for Requisition R01077002 and liquidate the requisition. 3. Invoice (Inv# I0628629) received for the annual maintenance related to Purchase Order P0501596. a) Liquidate encumbrance b) Record expense and accounts payable liability 4. Invoice I0628629 approved for payment and a check is generated. a) Reduce claim on cash (cash balance) and accounts payable liability in related fund. b) Record impact to bank fund. 18

SCENARIO 1 – Accounting for a Purchase Order: From Requisition to Vendor Payment FUND: 113100 FUND: BK53 Encumbrance Ledger Increase Commitment (reserve available balance) 1. 2. 3a. Establish Req Establish PO 1,483.83 1,483.83 Decrease Commitment (release reserve on available balance) (1,483.83) (1,483.83) Liquidate Req Liquidate PO General Ledger Claim on Cash dr 3b. 4a. 4b. cr 1,483.83 Accounts Payable dr cr 1,483.83 1,483.83 General Ledger (Component of Fund Balance) Expense Control dr cr 1,483.83 Claim on Cash dr cr 1,483.83 General Disbursements Fifth Third Bank Account dr cr 1,483.83 Operating Ledger 3b. Expense dr 1,483.83 cr 19

SCENARIO 2 – Accounting For Certain Endowment Fund Transactions 1. Check received for the Drs. White Endowed Scholarship Fund (Endowment Index/Designation 060382, Fund 60163M) a) Record deposit to the Bank b) Record Gift in Development (transaction feeds from Banner Development to Banner Finance). 2. Record quarterly endowment income distribution from the Common Trust Fund (Fund 699) to the Drs. White Endowed Scholarship Fund Index 477133 ( 1,000 used for example). 20

SCENARIO 2 – Accounting For Certain Endowment Fund Transactions Drs. White Endowed Scholarship Fund (60163M) General Ledger (Component of Fund Balance) Revenue Control Claim on Cash dr cr dr cr 1a. 1b. 25,000.00 2. Common Trust Fund (699) Comerica Bank Fund (BK10) Operating Ledger Undistributed Income (account 153031) Claim of Cash dr cr dr cr General Ledger Claim on Cash dr cr 25,000.00 Gift Bank Account dr cr 25,000.00 25,000.00 1,000.00 1,000.00 Drs. White Endowed Scholarship Index 477133 (Fund 290ZR) Operating Ledger Revenue dr 1b. 2. cr 25,000.00 General Ledger (Component of Fund Balance) Revenue Control Claim on Cash dr cr dr cr 1,000.00 1,000.00 Operating Ledger Revenue dr cr 1,000.00 21

SCENARIO 3 – Accounting For Certain Plant Fund Transactions 1. Receive request to establish new Unexpended Plant Fund account for Parking Structure 1-Major Repair (Index 771486, fund 70GLA) with funding from the following: a) 100,000 - Auxiliary index 227601, fund 3781 b) 5,675,000 - Plant Fund Reserve index 773033, fund 730C (Note: T-accounts not shown for Auxiliary Fund activity) 2. At year-end, record CIP for capitalizable expenditures for the fiscal year for the Parking Structure 1 Major Repair in the corresponding "Investment" in Plant fund Parking Structure 1 index (078320, fund 777V). (Note: As part of this process, Accounting staff will analyze the unexpended account to identify non capitalizable costs included in expense (internal transfers from other Plant Fund accounts) to determine the appropriate amount of CIP.) 22

SCENARIO 3 – ESTABLISH NEW PLANT FUND ACCOUNT & RECORD CONSTRUCTION IN PROGRESS (CIP) Parking Structure I Major Rep FY10 Index (771486) - Unexpended Plant Fund (70GLA) 1a. 1b. Claim on Cash dr cr 100,000.00 5,675,000.00 General Ledger (Component of Fund Balance) Expense Control dr cr 5,675,000.00 Operating Ledger (Component of Fund Balance) Transfer Control dr cr 100,000.00 Transfers dr from Auxi l i a ry Expense cr 100,000.00 dr cr 5,675,000.00 tra ns fer from i nterna l tra ns fer i nterfund tra ns fer a uxi l i a ry from Res erve from 773033 (a ccount 8514) (a ccount 785) Pl a nt Res erve Parking Improvement Reserve Index (773033) - Repair and Maintenance Reserve Fund (730C) General Ledger 1b. Claim on Cash dr cr 5,675,000.00 Expense Control dr cr 5,675,000.00 Operating Ledger Expense dr 5,675,000.00 (account 785) cr Parking Structure 1966 Index (078320) - Investment in Plant Fund (777V) General Ledger 2. CIP dr 5,093,651.00 cr Capital Expenditure * dr cr 5,093,651.00 * For Financial Statement purposes the credit to capital expenditures (in Investment in Plant Fund) is offset by the capitalizable expenditures which are incurred and recorded in the Unexpended Plant Fund (not shown in this example). 23

SCENARIO – 4 State of Michigan/DMC/UPG- Medicare Payments 1. WSU receives payment from DMC (usually via wire) for their portion of the Medicare payment a) Record impact to the bank fund b) Reduce unbilled receivable in index 224650, fund 130M31 2. WSU submits payment to the State of Michigan based on amount requested from UPG (includes DMC & UPG portion) via wire a) Record increase to unbilled receivable in index 224650, fund 130M31 b) Record impact to bank fund 3. UPG reimburses WSU for their portion of the payment via wire a) Record impact to bank fund b) Reduce unbilled receivable in index 224650, fund 130M31 Note: Wayne State treats this transaction as pass through activity. Therefore, there is no income statement impact. 24

SCENARIO – 4 State of Michigan/DMC/UPG- Medicare Payments Med AEF - Master Index (224650) - State of Michigan DSH Activity Fund (130M31) FUND: BK10 General Ledger General Ledger Claim on Cash dr 1a. 1b. 2a. 2b. 3a. 3b. cr Unbilled Accounts Receivable dr cr 200,000.00 Claim on Cash dr cr 200,000.00 Comerica EFT Concentration dr cr 200,000.00 200,000.00 2,909,159.38 2,909,159.38 2,909,159.38 2,909,159.38 2,709,159.38 2,709,159.38 2,709,159.38 2,709,159.38 25

Questions? February 16, 2011

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